Doctrine of unjust enrichment in case of refund of GST :
Refund will be normally paid in Consumer Welfare Fund, and not paid to the taxable person who has applied for refund – section 54(5) of CGST Act.
This is on the basis of doctrine of unjust enrichment, as explained below.
If the supplier of goods and services has recovered GST from recipient, it is clear that he has passed on the burden to the recipient and has already recovered GST from him. In such cases, refund of excess GST paid will amount to excess and un-deserved profit to supplier of goods and service. It will not be equitable to refund the duty to him, as he will get double benefit – first from the recipient of goods and services and again from the Government.
This will be ‘unjust enrichment’ of supplier.
Unjust enrichment – A benefit obtained from another, not intended as a gift and not legally justifiable, for which the beneficiary must make restitution or recompose – Indian Council for Enviro-Legal Action v. UOI (2011) 8 SCC 161.
Refund, if any, should be paid to customer who has borne the burden of GST. However, in majority of the cases, it is not practicable to identify individual consumer and pay refund to him. At the same time, the GST illegally collected and hence cannot be retained by Government.
In UOI v. Roplas Ltd. AIR 1989 Bom 183 = 1988(38) ELT 27 (Bom HC), it was suggested that in such cases, the refund due should be transferred to a Consumer Welfare Fund instead of paying it to the supplier.
The fund may be used for activities of protection and benefit of consumers.
With this view in mind, concept of unjust enrichment was introduced in Central Excise Act and Customs Act w.e.f. 20th September, 1991.
These provisions are being continued under GST also.
Provisions relating to unjust enrichment have been held as valid in Mafatlal Industries Ltd. v. UOI 89 ELT 247 = (1997) 5 SCC 536 = 111 STC 467 (SC 9 member Constitution bench).